For the midrange accounting systems industry, 1997 was a year when larger software com-panies made their presence acutely felt. One such giant was Microsoft Corp. (a rather benign giant, for a change). As in 1996, midrange vendors were preoccupied with developing their accounting software for a Microsoft platform--namely, Windows NT, using Microsoft SQL Server as the database. With this year's introduction of Microsoft Small Business Server, that platform became available even to very small businesses. As vendors converged on the same platform, they sought to differentiate themselves in various ways, such as adding new features or Internet functionality, or tailoring their software for vertical market niches.
One such company was the Redmond, Washington-based colossus, Microsoft Corp. As in 1996, midrange vendors were preoccupied with developing their accounting software for a Microsoft platform--namely, Windows NT, using Microsoft SQL Server as the database. With this year's introduction of Microsoft Small Business Server, that platform became available even to very small businesses. As vendors converged on the same platform, they sought to differentiate themselves in various ways, such as adding new features or Internet functionality, or tailoring their software for vertical market niches.
Shadowing all this activity was vendors' consciousness of a new and disturbing class of competitor--giants like SAP, Oracle, and PeopleSoft, which, seeing the market at the high end become saturated, began to train their sights on the middle market and below (see "Software for the Millennium," CFO, February). Experts have long predicted that the big accounting vendors will eventually crowd out the smaller ones. But if the smaller fish are nervous to find their waters invaded by larger predators, they have the advantages of agility and speed, and they know their territory better.
The biggest challenge for smaller vendors, as always, will be to keep up with changing technology as they continue to grow their customer base. It's true that the evolution of technology can quickly turn big fish into endangered species. Unfortunately, it's also true that such evolution can wipe out smaller fish, with their limited R&D resources, virtually overnight.
SQL-based products are the latest development in the history of microcomputer accounting software. The original products, developed in the early 1980s, were single-user systems that allowed one person at a time to enter data and print reports. By 1990, it was standard for midrange accounting software to be running on local area networks (LANs), which permit several users simultaneously to enter data and print reports. Data was stored on a LAN server, with each vendor storing data in its own proprietary format.
The rise of SQL databases in the 1990s is important because it provides a way to standardize accounting software data formats. This benefits users because it makes it possible for financial software products from different vendors to interoperate. Having more-standard data formats makes it possible for one vendor's financial software to work with another vendor's manufacturing software, or with another vendor's financial reporting software.
Accounting software products that use Unix-based SQL databases, such as those from Oracle, Sybase, and Informix, have formerly been the province of high-end accounting software vendors, such as SAP, Oracle, and PeopleSoft. SQL databases have always been extremely expensive to implement, often costing $100,000 or more for the database software alone. For that reason, midrange multiuser accounting systems used much lower cost solutions, such as Btrieve databases running on Novell LANs. (These are still the most widely implemented systems today.)
But in the early 1990s, led by founder Gerald Blackie, Platinum Software foresaw that SQL databases would become far cheaper and less complex. In 1992, ahead of its midrange competitors, Platinum came out with an SQL-based product based on Sybase's SQL database system. Blackie's prediction was on the mark: In 1993, Microsoft came out with SQL Server running on Windows NT. (Originally, SQL Server was based on Sybase's SQL product.)
This platform is not as powerful as the high-end SQL systems running on Unix systems, but its cost--as little as $10,000--has made Windows NT running SQL Server a common platform for all the midrange vendors.
Blackie's, and Platinum's, problems began in 1994 when it was disclosed that the company had improperly recognized millions of dollars in revenue. Blackie and his management team resigned, and several years of losses ensued, through fiscal 1997.
But under the guidance of L. George Klaus, who took over as CEO in February 1996, and Klaus's management team, Platinum is returning to profitability. "We've accomplished virtually everything we set out to do when we took over," says Bill Pieser, senior vice president, marketing and business development. Thanks to its 1994 head start, the company is now the number one supplier of financial applications on Microsoft's SQL Server, with Great Plains a close second and SAP third, according to figures from market researcher International Data Corp., in Framingham, Massachusetts. (As of September 1997, Platinum has 900 installations, Great Plains has 775, and SAP has 575.)
"Platinum finally has a management team that understands how to sell accounting software," declares Charles Chewning, president of Solutions, in Richmond, Virginia. It's even solved the problem that has stumped it in the past: selling its product through independent VARs (value-added resellers) while it also sells through its direct sales force. "That's no longer a problem," says Chewning. "The direct sales force handles the Platinum SQL system, and doesn't touch the [LAN-based] Platinum for Windows. That way, they aren't in competition with their own VARs."
Furthermore, Platinum added major new features to its Platinum SQL product line, including extensive multinational currency support and customer service modules, the latter through acquisition of Clientele Software Inc. in June 1997. And in November, Platinum acquired FocusSoft Inc., a supplier of manufacturing and distribution software. It's a good fit, according to Steven Gray, president of consulting firm Eisner Computer Solutions, in New York.
"The idea is to integrate manufacturing with accounting modules, and then offer an enterprisewide solution," says Gray. "So they've raised the bar on Great Plains and Solomon [which depend on third parties to provide users with manufacturing software], and State of the Art isn't even in that marketplace."
Great Plains on the Net
Although other vendors started on the SQL Server systems later than Platinum, the strategy is basically the same. As Microsoft SQL Server running on Windows NT has become more widespread, every major midrange vendor has been focusing its resources on developing new SQL systems, while continuing to maintain and enhance its older LAN-based systems.
With high-end SQL functionality becoming more common, vendors are differentiating themselves by means of features. Great Plains has been concentrating on adding substantial Internet functionality to its products, according to former chief technology officer Ray August. "We're changing the entire system to take advantage of the Internet," he says. "This means that we're integrating the Internet into every application."
Just as SQL databases are causing data formats to become more standardized, the Internet is causing the user interface to become more standardized. The goal of Great Plains and other vendors is to enable any authorized user with an Internet browser to access their accounting software. Ultimately, Internet integration will extend the reach of accounting software directly to employees, customers, and suppliers, with "self-service" applications that allow people with appropriate authorization to use an Internet browser to access the data and functions of the accounting system.
There are different levels and ranges of functions in Internet integration, as can be seen from the types of information provided in the vendor tables accompanying this article. The simplest form of Internet functionality is to put the software's standard screens into HTML (hypertext markup language) so that they can be accessed from an Internet browser. Self-service functionality extends the access out of the back office. It permits employees to obtain or change human resource information, and enables trusted vendors and customers to determine account status. Electronic commerce extends access even further, by allowing any potential customer to browse catalogs and place orders online.
Great Plains is attacking all these areas of Internet access. "Great Plains Dynamics is a solid, mature system," says Sheldon Needle, president of Computer Training Services Inc., a consultancy in Rockville, Maryland. "There are some Windows products that are easier to customize, but GP has done an excellent job in developing its Internet commerce modules."
Solomon Software has also been implementing Internet functionality, though more slowly than Great Plains. It has also been heavily investing in vertical market applications. The biggest investment was the acquisition of Smith, Dennis & Gaylord (SDG) of Santa Clara, California, a business partner that had developed Solomon software add-ons for project management.
"The acquisition of SDG gives Solomon an excellent job/project cost application," notes Needle. Solomon also has codevelopment arrangements with a number of other business partners, providing software for process manufacturing and for municipal governments and utilities.
State of the Art from scratch
The newest SQL Server system is State of the Art's Acuity Financials. Rather than being a modification or upgrade of another system, Acuity Financials was written from scratch, entirely from Microsoft-only technology.
"They made this product with the purest leading-edge Microsoft technology on the market, which gives them a competitive advantage in the marketplace," observes Steven Gray. "But because it's a new product, it lacks features. It's pretty much a back-office accounting product, and lacks the full distribution modules available in other products."
Although Acuity is a leading-edge system, State of the Art shares with other vendors the problem of finding VARs who can provide support. "State of the Art has more than 7,000 VARs, but almost all of them are CPAs who have been using the company's older software, mostly under DOS and Windows," says Richard Dance, president of SoftResources LLC, a business software consulting firm in Seattle. "These VARs have no experience with SQL Server or NT, and State of the Art will have to train new VARs to handle that system." Solomon has similar problems, according to Dance. "Support for Solomon's high-end system is very spotty in some parts of the country."
Small Business Server arrives
In January, Microsoft released a new back-office system that bodes dramatic change in the low-end-to-midrange accounting software market. The advent of Small Business Server represents a further evolution in midrange accounting software platforms, and may cause substantial changes in the current stratification of the accounting software industry for small businesses.
Currently, the smallest businesses--those with annual revenues under $5 million or so--use low-end, single-user accounting systems, such as Intuit Corp.'s QuickBooks for Windows or Peachtree Software's Accounting for Windows. These packages are shrink-wrapped and available in retail stores. They're very easy to install on a single computer, and they perform basic accounting functions for small businesses. The disadvantage is that if a small business outgrows the software, there's no easy place to upgrade to.
In between the single-user systems and the SQL Server-based systems are the midrange LAN systems. These are the current versions of the LAN systems that were being sold prior to the development of the SQL Server systems, such as Platinum for Windows or State of the Art's MAS90, now targeted to companies with revenues from $5 million to $25 million. These are mature, powerful systems for midsized companies, and they're still the most widely installed for these companies. However, SQL has already become a requirement for companies in this range.
Microsoft's Small Business Server is a collection of Microsoft products that provide a LAN with SQL Server, along with software to set up an Internet server and to allow users to share faxes and modems. Up to 25 concurrent users can use the software. Cost: under $3,000. This makes SQL Server available to much smaller businesses. Great Plains, Solomon, and other major vendors are targeting versions and special packaging of their systems for Small Business Server; these systems are now competing head-to-head with older low-end accounting systems.
Peachtree buys Mica
A good example of how quickly things are changing comes from Peachtree Software, which has long been known for its very-low-end accounting software. In 1997, Peachtree acquired Micro Associates Inc. and its LAN-based accounting software package, Mica IV, which it now sells as Peachtree 2000. Peachtree plans to introduce a Microsoft SQL Server version next year, to run with the Small Business Server.
Mica IV has traditionally filled a niche between Peachtree's Accounting for Windows and the lower end of the major midrange packages from Great Plains, Solomon, and others. That's still true, of course, but with Great Plains and Solomon planning to sell their own software into the Small Business Server market, there is going to be a great deal of competition.
The availability of Microsoft's Small Business Server culminates a remarkable time in the history of the computer industry, according to Harry Tse, analyst at Yankee Group in Boston. "We go in cycles, and we're at a point in the technology curve where Microsoft is the dominant provider for platforms and tools," he says. Because of the common platforms, "it's becoming harder for companies like Great Plains and Platinum to differentiate their products from each other."
Infinium banks on performance
High-end vendors are also affected by widespread adoption of the Microsoft platform. Witness the change in direction of Infinium Software, which has been a leading vendor of financial software on the AS/400 computer. With financial functions--general ledger, accounts receivable, accounts payable-- becoming more and more standardized on the Windows NT/SQL Server platform, Infinium has changed its marketing strategy, as indicated by the fact that this year the company asked to be listed in CFO's midrange buyer's guide, rather than last month's high-end guide.
According to president and CEO Fred Lizza, Infinium is differentiating itself from other vendors by bringing to the new platform the same performance advantages the software has on the AS/400 platform. "There's a huge difference," asserts Lizza, "between our NT products and [other vendors' products] in two major areas--the time it takes to do a period close, and the time it takes to get decision support information out of the system." In an increasingly crowded field targeting the same market, it remains to be seen whether performance claims like these will be sufficient to make Infinium as successful on the NT as it is on the AS/400.
International presence: Accpac and Navision
Accpac had special problems differentiating itself when it was just another one of Computer Associates International Inc.'s 500-plus software products. In its earlier days, Accpac was quite popular, and in fact is still listed as having the largest number of DOS-based installations of accounting software in the world, according to figures from International Data Corp. But Accpac lost its way when Computer Associates made Accpac part of its strategy for its high-end accounting system, Masterpiece.
"It was good in concept," recalls Dave Dalton, vice president of product marketing for Accpac International, a wholly-owned subsidiary of Computer Associates. "We would have Accpac and Masterpiece share common data, and we would market Masterpiece to the home office and Accpac to the field office. The problem was that Accpac lost its own identity. There was so much focus on making it work with Masterpiece, that Accpac's own installed base, which is huge, got ignored."
Finally, in April 1996, Computer Associates abandoned the joint strategy with Masterpiece, when it spun off Accpac International as an independent business unit and even hired back some of the product's original developers. (Another independent business unit, Prestige Software International, was spun off to take over development of Masterpiece.) There had been only one new version of Accpac released in the three years prior to the spin-off, but three new releases of Accpac for Windows were released in the 18 months after the deal.
Accpac has strong international features, according to Charles Chewning. "They have a very loyal user base, and their strength is their operations in other countries. They virtually own Canada and South Africa," he says. However, because of the delays caused by the Masterpiece strategy, Accpac does not have all the functionality of some of its international competitors. "Accpac is a step below Navision, Scala, and SunSystems [Systems Union]," says Chewning. "It's not as robust as those systems." (Scala and Systems Union are listed in CFO's February buyer's guide to high-end systems.)
Navision Financials, from Denmark-based Navision Software a/s, is another system spanning the gap between the high-end and midrange buyer's guides in terms of capability. Navision has considerable international presence, being heavily installed throughout Europe, with additional installations in Asia and the Pacific Rim. The company has been marketing the product in the United States since 1994; some analysts put Navision in the top echelon of midrange accounting systems, along with Platinum, Great Plains, Solomon, and State of the Art.
Navision's strength and weakness is its development language, C/SIDE, which users employ to customize the software. In contrast, Solomon, Great Plains, and other vendors use Visual Basic as a customization language. Many users prefer Visual Basic because it's a general-purpose Microsoft tool, and programmers are widely available. However, C/SIDE is designed specifically for customizing Navision.
"It's very flexible, and enables the reseller to customize the package very quickly," says Steven Gray. "But the language is proprietary and has limited distribution in the U.S., so Navision might have service problems."
More distinctions: Macola, Cyma, and RealWorld
For years, Macola's distinction was that it sold just about the only midrange accounting package that offered a suite of manufacturing and distribution modules. Now Macola has more competition in this respect, thanks to Platinum's aforementioned acquisition of FocusSoft, and to the efforts of vendors like Great Plains and Solomon to market third-party manufacturing software.
However, "most midrange accounting packages don't go very far" in these respects, points out Chewning. "Even Macola is really best suited for a single-site manufacturing environment, since there's no logistics. When you get to multiple sites, then you have to go to a high-end system."
Cyma Systems Inc. recently took the rather drastic step of reducing its product prices by 60 percent. Cyma IV has a suite of financial modules--general ledger, accounts payable, accounts receivable, and payroll--and the entire suite can now be purchased for around $2,000, making it one of the lowest-priced LAN-based systems on the market. "There's a vacuum in the market for reasonably priced, full-featured accounting software, and we're going to fill that vacuum," says Steve Brueckner, vice president of marketing.
The price cut was necessary, according to Chewning. "Cyma is a small company with a good product," he says, "but not differentiated enough to sell a lot. They needed a product where there's less competition and less demand for functionality."
RealWorld obtained its Visual Accounting suite by acquiring Intellisoft in 1995, giving the old-line RealWorld and its thousands of customers a new, innovative client/ server accounting system. "RealWorld Visual Accounting doesn't have the visibility of other quality packages," says Needle, "but it's extremely well designed and requires the least hardware resources--a very thin client--to operate of any major Windows accounting system. It has excellent features for fund accounting and solid core modules, but lacks job cost and has no major links to third-party vertical packages."
The system has had a "history of instability," adds Needle, "but the vendor claims the most recent version has cleared up the major problems." The next version of Visual Accounting, which comes out in limited release this month, will support SQL Server and be able to handle electronic commerce over the Internet, according to Michael S. Anctil, manager for market development at RealWorld.
Going to the source: SBT and AccountMate
Most vendors don't supply complete source code to their accounting software, since most users don't need to modify the core functionality of the system. However, SBT and AccountMate have always distinguished themselves by providing the full source code--written in Microsoft's FoxPro--with their systems. Many VARs like these systems because this policy gives them the ability to customize the systems in any way their customers require.
For the past year, AccountMate has been focusing on moving its existing system to an SQL Server platform, including the Microsoft Small Business Server, and strengthening its offering on other platforms, which include IBM's AS/400. "We now have products on multiple platforms, all with the same user and interface and functionality," says company president Ben Tse. "We believe that's a distinct advantage. This allows the user to grow from one platform to another, and also move horizontally from one to another platform."
SBT has taken a different direction. Rather than upgrading its FoxPro-based Pro Series accounting software, SBT decided to take a leap in functionality by acquiring a high-end client/server accounting suite from PowerCerv Corp., which it now sells as Executive Series. The system is written in Sybase Corp.'s PowerBuilder, and the PowerBuilder source code is available for the Executive Series, just as the FoxPro source code is available for the Pro Series. However, although the PowerCerv modules have a lot of functionality, SBT will have to work to make them into an integrated whole, says Richard Dance.
John J. Xenakis is technology editor of CFO.